Rachel Reeves’ Autumn Budget: Impact on Inheritance Tax

There has been a lot of discussion in the media over the changes Rachel Reeves made to Inheritance Tax in the Autumn Budget.

These range from changes to tax rates, filling in the £22b black hole (Pothole to me!) and changes in the treatment of Inheritance Tax in a few sectors – most famously those impacting farmers.

For background Inheritance Tax is one of the simplest taxes to avoid your estate paying and has been around for a long time either as an estate tax or death tax. It has changes over the years but it certainly isn’t a big tax, in 2021/21 tax year only 27,800 paid IHT (up 800 from the year before).

Less than half of all deaths required “checking with HMRC” to establish the tax liability. This is mainly because IHT is only really paid by estates that are above the £325,000 threshold (excluding your main residence) and around £1m for a couple.

Historically this would have been the “wealthy” but with the massive rise in property value and retirees who have “buy to let” portfolios this has dragged many into considering it (even if they are not actually liable for IHT).

It currently raises £7b for the government but changes to the budget means that around 7% of estates could be liable by 2032 (versus around 4% today). So if you are in the category and want to avoid IHT what can you do about it today, there are a number of tax advisors that will look at trusts, going offshore or other tax schemes.

One of the simplest ways to reduce your estate is to give some assets away to family members and monitor it using the 7 year rule (your estate has gift the asset 7+ years prior to your death). Having discussed this with a number of people the usual question of “what happens if I need the asset” comes up, but in your 50s and 60s you should really have a long term plan (into your 90s) of your spending plans.

There are number of financial advisors that can help with this (I am not a fan of advisors generally!) but there are some very good free and nearly free tools to help you run scenarios. I use a relatively free product called Retire Easy, which is £2.99 a month!

It uses classic scenario planning and likely investment returns (using the Monte Carlo method) to help plan likely asset returns from investment and other assets.

I suggest ever family sits down and runs these types of scenarios as they approach later life, increased longevity and better healthcare likely means we will live a lot longer than we think! (Hopefully!)